PIM4488 - Property allowance: contents: examples: using the property allowance and income from an interest in possession trust

Full relief

Melissa is a beneficiary of a trust and as it’s an interest in possession trust she is entitled to the UK property income as it arises.

In 2017-18, the gross rent received was £750 and expenses were £250. (Due to the new residential property finance costs restriction, only 75% of finance expenses are an allowable deduction).

Melissa’s taxable income is £562.50 and she receives £450, after the trustees pay tax at basic rate of £112.50, which is reported on box 3 of R185 (Trust income).

The trustees provide a breakdown of her share of the gross rent of £750 and expenses of £250.

Melissa also has income from employment of £30,000 and is entitled to her personal allowance of £11,500.

Mellissa is liable to pay tax on the property income under Chapter 3, Part 3, ITTOIA 05. The gross income of £750 is relevant property income (as defined in ITTOIA05/S783BC).

As the relevant property income does not exceed the property allowance amount of £1,000, Full Relief under ITTOIA05/S783BE applies, which means the receipts of £750 and the expenses of £250 are not brought in to account for the purposes of calculating the profits of the property business.

As Melissa has paid tax of £112.50 on the property income (via the trustees), tax may have been overpaid. Form R185 (Trust income) provides instructions on how to report this income and reclaim any overpaid tax.

Partial relief

Natalie is a beneficiary of a trust and as it’s an interest in possession trust she is entitled to the UK property income from the trust.

In 2017-18, the gross rent was £5,250 and the expenses were £250. (Due to the new residential property finance costs restriction, only 75% of finance expenses are an allowable deduction). Natalie’s taxable income is £5062.50 and she receives £4,050, after the trustees pay tax at basic rate of £1,012.50, which is reported on box 3 R185 (Trust income).

The trustees provide a breakdown of her share of the gross rent of £5,250 and expenses of £250.

Natalie also has income from employment of £30,000 and is entitled to her personal allowance of £11,500.

Natalie is liable to pay tax on the property income under Chapter 3, Part 3, ITTOIA 05.

The gross income of £5,250 is relevant property income (as defined by ITTOIA05/S783BC).

Natalie decides to make an election for Partial Relief under ITTOIA05/S783BG.

Natalie’s profits calculated under ITTOIA05/S783H are as follows:

Receipts: £5,250

Less: property allowance amount: £1,000

Profits: £4,250

Form R185 (Trust) provides instructions on how to report this income and reclaim any overpaid tax.